Accounting for Merchandising Operations – Chapter 5 Test Bank 24e

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Fundamental Accounting Principles, 24e (Wild)

Chapter 5 Accounting for Merchandising Operations

1) Merchandise inventory refers to products that a company owns and plans to sell to customers.

2) A service company earns net income by buying and selling merchandise.

3) Gross profit is also called gross margin.

4) Cost of goods sold is also called cost of sales.

5) A wholesaler buys products from manufacturers or other wholesalers and sells them to consumers.

6) A retailer buys products from manufacturers and sells them to wholesalers.

7) Cost of goods sold represents the expense of buying and preparing merchandise for sale.

8) A company had sales of $350,000 and cost of goods sold of $200,000. Its gross profit equals $150,000.

9) A company had net sales of $545,000 and cost of goods sold of $345,000. Its gross margin equals $890,000.

10) A company had a gross profit of $300,000 based on sales of $400,000. Its cost of goods sold equals $700,000.

11) A merchandising company's operating cycle begins with the purchase of merchandise and ends with the collection of cash from the sale.

12) Merchandise inventory is reported in the long-term assets section of the balance sheet.

13) Cash sales shorten the operating cycle for a merchandiser; credit sales lengthen operating cycles.

14) Cost of goods sold is an expense, and is reported on the income statement.

15) A periodic inventory system requires updating of the inventory account only at the beginning of an accounting period.

16) A perpetual inventory system continually updates accounting records for merchandising transactions.

17) Beginning inventory plus net purchases equals merchandise available for sale.

18) The acid-test ratio is also called the quick ratio.

19) Quick assets include cash and cash equivalents, inventory, and current receivables.

20) The acid-test ratio is defined as current assets divided by current liabilities.

21) A company with an acid-test ratio of 4.1 is unlikely to face near-term liquidity problems.

22) Successful use of a just-in-time inventory system can narrow the gap between the acid-test and the current ratio.

23) A company's quick assets are $147,000 and its current liabilities are $143,000. This company's acid-test ratio is 1.03.

24) A company's current ratio is 1.2 and its quick ratio is 0.25. This company is probably an excellent credit risk because the ratios reveal no indication of liquidity problems.

25) The gross margin ratio is defined as gross margin divided by net sales.

26) The profit margin ratio is the same as the gross profit ratio.

27) A company had net sales of $340,500, its cost of goods sold was $257,000, and its net income was $13,750. The company's gross margin ratio equals 24.5%.

28) The Merchandise Inventory account balance at the beginning of the current period is equal to the amount of ending Merchandise Inventory from the previous period.

29) Credit terms for a purchase include the amounts and timing of payments from a buyer to a seller.

30) Purchase returns refer to merchandise a buyer purchases but then returns to the seller.

31) Purchase allowances refer to merchandise a buyer acquires but then returns to the seller.

32) Purchase allowances refer to a price reduction (allowance) granted to a buyer of defective or unacceptable merchandise.

33) Under the perpetual inventory system, the cost of merchandise purchased is recorded in the Merchandise Inventory account.

34) Credit terms of 2/10, n/30 imply that the seller offers the purchaser a 2% cash discount if the amount is paid within 10 days of the invoice date. Otherwise, the full amount is due in 30 days.

35) Sellers always offer a discount to buyers for prompt payment toward purchases made on credit.

36) Purchase discounts are the same as trade discounts.

37) If a company sells merchandise with credit terms 2/10 n/60, the credit period is 10 days and the discount period is 60 days.

38) The seller is responsible for paying shipping charges and bears the risk of damage or loss in transit if goods are shipped FOB destination.

39) If goods are shipped FOB destination, the seller does not record revenue from the sale until the goods arrive at their destination because the transaction is not complete until that point.

40) If goods are shipped FOB shipping point, the seller does not record revenue from the sale until the goods arrive at their destination because the transaction is not complete until that point.

41) A buyer using a perpetual inventory system records the costs of shipping merchandise it purchases in a Delivery Expense account.

42) A buyer of $5,000 in merchandise inventory does not take advantage of a supplier's credit terms of 2/10, n/30, and instead pays the invoice in full at the end of 30 days. The buyer will pay $4,900.

43) FOB shipping point means that the buyer accepts ownership when the goods arrive at the buyer's place of business.

44) Each sales transaction for a seller that uses a perpetual inventory system involves recognizing both revenue and cost of merchandise sold.

45) Offering sales discounts on credit sales can benefit a seller by decreasing the delay in receiving cash and reducing future collections efforts.

46) Sales Discounts is added to the Sales account when computing a company's net sales.

47) Sales discounts has a normal debit balance because it decreases Sales, which has a normal credit balance.

48) Under a perpetual inventory system, when a credit customer returns non-defective merchandise to the seller, the seller debits Sales Returns and Allowances and credits Accounts Receivable and also debits Merchandise Inventory and credits Cost of Goods Sold.

49) The perpetual system requires that each sale of merchandise has two entries: the revenue side and the cost side.

50) A journal entry with a debit to cash of $980, a debit to Sales Discounts of $20, and a credit to Accounts Receivable of $1,000 means that a customer has taken a 10% cash discount for early payment.

51) Sales of $350,000 and net sales of $323,000 could reflect sales discounts of $27,000.

52) A perpetual inventory system is able to directly measure and monitor inventory shrinkage and there is no need for a physical count of inventory.

53) Sales Discounts and Sales Returns and Allowances are contra revenue accounts that are debited to close the accounts during the closing process.

54) Cost of Goods Sold is debited to close the account during the closing process.

55) In a perpetual inventory system, the Merchandise Inventory account must be closed at the end of the accounting period.

56) The adjusting entry to reflect inventory shrinkage is a debit to Income Summary and a credit to Inventory Shrinkage Expense.

57) A multiple-step income statement format shows detailed computations of net sales and other costs and expenses, and reports subtotals for various classes of items.

58) Operating expenses are classified into two categories: selling expenses and cost of goods sold.

59) A merchandiser's classified balance sheet reports merchandise inventory as a current asset.

60) Expenses related to accounting, human resource management, and financial management are known as selling expenses.

61) When a company has no reportable non-operating activities, its income from operations is simply labeled net income.

62) A single-step income statement includes cost of goods sold as another expense and shows only one subtotal for total expenses.

63) Under a periodic inventory system, purchases, purchases returns and allowances, purchase discounts, and transportation-in transactions are recorded in the Merchandise Inventory account.

64) The periodic inventory system requires updating the inventory account only at the end of the period.

65) In a periodic inventory system, cost of goods sold is recorded as each sale occurs.

66) Under both the periodic and perpetual inventory systems, the temporary account Purchases Returns and Allowances is used to accumulate the cost of all returns and allowances for a period.

67) Delivery expense is reported as part of general and administrative expense in the seller's income statement.

68) New revenue recognition rules require that sellers report sales net of expected sales discounts.

69) Under new revenue recognition rules, the gross method requires a period-end adjusting entry to estimate future sales discounts.

70) Inventory Returns Estimated, which reflects an adjustment to inventory for expected future returns, is a liability account reported in the balance sheet, usually under Current Liabilities.

71) Inventory Returns Estimated is a current asset account used in a period-end adjusting entry to reflect the inventory estimated to be returned in the future.

72) Under the net method, when a company uses a perpetual inventory system, an invoice for $2,000 with terms of 2/10, n/30 should be recorded with a debit to Merchandise Inventory and a credit to Accounts Payable of $2,000.

73) When purchases are recorded at net amounts, any discounts lost as a result of late payments are reported as an expense.

74) The net method records the invoice at its net amount (net of any cash discount).

75) Either the gross method or net method may be used to record sales with cash discounts, but the net method requires a period-end adjusting entry to estimate expected future sales discounts taken.

76) Under the net method of recording purchases, the Discounts Lost account is used when the purchaser fails to take a discount offered by the seller.

77) A merchandiser:

A) Earns net income by buying and selling merchandise.

B) Receives fees only in exchange for services.

C) Earns profit from commissions only.

D) Earns profit from fares only.

E) Buys products from consumers.

78) Cost of goods sold:

A) Is another term for merchandise sales.

B) Is the term used for the expense of buying and preparing merchandise for sale.

C) Is another term for revenue.

D) Is also called gross margin.

E) Is a term only used by service firms.

79) A company has sales of $695,000 and cost of goods sold of $278,000. Its gross profit equals:

A) $(417,000).

B) $695,000.

C) $278,000.

D) $417,000.

E) $973,000.

80) A company has sales of $375,000 and its gross profit is $157,500. Its cost of goods sold equals:

A) $(217,000).

B) $375,000.

C) $157,500.

D) $217,500.

E) $532,500.

81) Which of the following statements regarding gross profit is not true?

A) Gross profit is also called gross margin.

B) Gross profit less other operating expenses equals income from operations.

C) Gross profit is not calculated on the multiple-step income statement.

D) Gross profit must cover all operating expenses to yield a return for the owner of the business.

E) Gross profit equals net sales less cost of goods sold.

82) Which of the following statements regarding merchandise inventory is not true?

A) Merchandise inventory is reported on the balance sheet as a current asset.

B) Merchandise inventory refers to products a company owns and intends to sell.

C) Merchandise inventory may include the costs of freight-in and making them ready for sale.

D) Merchandise inventory appears on the balance sheet of a service company.

E) Purchasing merchandise inventory is part of the operating cycle for a business.

83) Which of the following statements regarding the operating cycle of a merchandising company is not true?

A) The operating cycle begins with the purchase of merchandise.

B) The operating cycle is shortened by credit sales.

C) The operating cycle ends with the collection of cash from the sale of merchandise.

D) The operating cycle can vary in length among different merchandising companies.

E) The operating cycle sometimes involves accounts receivable.

84) Merchandise inventory:

A) Is a long-term asset.

B) Is a current asset.

C) Includes supplies the company will use in future periods.

D) Is classified with investments on the balance sheet.

E) Must be sold within one month.

85) The operating cycle for a merchandiser that sells only for cash moves from:

A) Purchases of merchandise to inventory to cash sales.

B) Purchases of merchandise to inventory to accounts receivable to cash sales.

C) Inventory to purchases of merchandise to cash sales.

D) Accounts receivable to purchases of merchandise to inventory to cash sales.

E) Accounts receivable to inventory to cash sales.

86) The current period's ending inventory is:

A) The next period's beginning inventory.

B) The current period's cost of goods sold.

C) The prior period's beginning inventory.

D) The current period's net purchases.

E) The current period's beginning inventory.

87) Beginning inventory plus net purchases is:

A) Cost of goods sold.

B) Merchandise (goods) available for sale.

C) Ending inventory.

D) Sales.

E) Shown on the balance sheet.

88) The acid-test ratio:

A) Is also called the quick ratio.

B) Measures profitability.

C) Measures inventory turnover.

D) Is generally greater than the current ratio.

E) Measures return on assets.

89) Quick assets are defined as:

A) Cash, short-term investments, and inventory.

B) Cash, short-term investments, and current receivables.

C) Cash, inventory, and current receivables.

D) Cash, noncurrent receivables, and prepaid expenses.

E) Accounts receivable, inventory, and prepaid expenses.

90) KLM Corporation's quick assets are $5,888,000, its current assets are $11,700,000 and its current liabilities are $8,000,000. Its acid-test ratio equals:

A) 0.50.

B) 0.68.

C) 0.74.

D) 1.50.

E) 2.20.

91) A company's current assets are $17,980, its quick assets are $11,420 and its current liabilities are $12,190. Its quick ratio equals:

A) 0.94.

B) 1.07.

C) 1.48.

D) 1.57.

E) 2.40.

92) Liquidity problems are likely to exist when a company's acid-test ratio:

A) Is less than the current ratio.

B) Equals 1.

C) Is higher than 1.

D) Is substantially lower than 1.

E) Is higher than the current ratio.

93) The acid-test ratio differs from the current ratio in that:

A) Liabilities are divided by current assets.

B) Prepaid expenses and inventory are excluded from the calculation of the acid-test ratio.

C) The acid-test ratio measures profitability and the current ratio does not.

D) The acid-test ratio excludes short-term investments from the calculation.

E) The acid-test ratio is a measure of liquidity but the current ratio is not.

94) Using the following year-end information for Calvin's Clothing, calculate the current ratio and acid-test ratio for the business:

A) 1.80 and 1.00

B) 1.97 and 1.52

C) 2.73 and 1.52

D) 3.50 and 0.90

E) 1.80 and 0.90

95) The gross margin ratio:

A) Is also called the net profit ratio.

B) Indicates the percent of sales revenue remaining after covering the cost of the goods sold.

C) Is also called the profit margin.

D) Is a measure of liquidity and should exceed 2.0 to be acceptable.

E) Should be greater than 1 for merchandising companies.

96) A company's gross profit (or gross margin) was $83,750 and its net sales were $347,800. Its gross margin ratio is:

A) 4.2%.

B) 24.1%.

C) 75.9%.

D) $83,750.

E) $264,050.

97) A company's net sales were $676,600, its cost of goods sold was $236,810 and its net income was $33,750. Its gross margin ratio equals:

A) 5%.

B) 9.6%.

C) 35%.

D) 65%.

E) 285.7%.

98) A company had net sales of $752,000 and cost of goods sold of $543,000. Its net income was $17,530. The company's gross margin ratio equals:

A) 18.9%

B) 24.5%

C) 27.8%

D) 34.7%

E) 35.2%

99) Mega Skateboard Supplier had net sales of $2.8 million, its cost of goods sold was $1.6 million, and its net income was $0.9 million. Its gross margin ratio equals:

A) 32%.

B) 175%.

C) 43%.

D) 57%.

E) 56%.

100) The credit terms 2/10, n/30 are interpreted as:

A) 2% cash discount if the amount is paid within 10 days, or the balance due in 30 days.

B) 10% cash discount if the amount is paid within 2 days, or the balance due in 30 days.

C) 30% discount if paid within 2 days.

D) 30% discount if paid within 10 days.

E) 2% discount if paid within 30 days.

101) A trade discount is:

A) A term used by a purchaser to describe a cash discount given to customers for prompt payment.

B) A reduction in selling price below the list price.

C) A term used by a seller to describe a cash discount granted to customers for prompt payment.

D) A reduction in price for prompt payment.

E) Also called a rebate.

102) Jasper Company is a wholesaler that buys merchandise in large quantities. Its supplier's catalog indicates a list price of $500 per unit on merchandise Jasper intends to purchase, and offers a 30% trade discount for large quantity purchases. The cost of shipping for the merchandise is $7 per unit. Jasper's total purchase price per unit will be:

A) $507.

B) $350.

C) $357.

D) $343.

E) $493.

103) Fragment Company is a wholesaler that sells merchandise in large quantities. Its catalog indicates a list price of $300 per unit on a particular product and a 40% trade discount is offered for quantity purchases of 50 units or more. The cost of shipping the merchandise is $7 per unit under terms FOB shipping point. If a customer purchases 100 units of this product, what is the amount of sales revenue that Fragment will record from this sale?

A) $18,000

B) $30,000

C) $18,700

D) $29,300

E) $30,700

104) The amount recorded for merchandise inventory includes all of the following except:

A) Purchase discounts.

B) Returns and allowances.

C) Freight costs paid by the buyer.

D) Freight costs paid by the seller.

E) Trade discounts.

105) A company uses the perpetual inventory system and recorded the following entry:

This entry reflects a:

A) Purchase of merchandise on credit.

B) Return of merchandise.

C) Sale of merchandise on credit.

D) Payment of the account payable less a 2% cash discount taken.

E) Payment of the account payable less a 1% cash discount taken.

106) Which of the following is not included on a purchase invoice?

A) Seller's name and address.

B) Name and address of the purchaser.

C) Description of items purchased.

D) Arrival date of items ordered.

E) Credit terms.

107) A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 8, it paid the full amount due. The amount of the cash paid on July 8 equals:

A) $200.

B) $1,564.

C) $1,568.

D) $1,600.

E) $1,800.

108) A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The amount of the cash paid on July 28 equals:

A) $200.

B) $1,564.

C) $1,568.

D) $1,600.

E) $1,800.

109) A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, The correct journal entry to record the purchase on July 5 is:

A) Debit Merchandise Inventory $1,600; credit Cash $1,600.

B) Debit Merchandise Inventory $1,800; credit Accounts Payable $1,800.

C) Debit Merchandise Inventory $1,800; credit Sales Returns $200; credit Cash $1,600.

D) Debit Accounts Payable $1,800; credit Merchandise Inventory $1,800.

E) Debit Accounts Payable $1,800; credit Purchase Returns $200; credit Merchandise Inventory $1,600.

110) A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the merchandise return on July 7 is:

A) Debit Merchandise Inventory $1,600; credit Cash $1,600.

B) Debit Merchandise Inventory $200; credit Accounts Payable $200.

C) Debit Merchandise Inventory $200; credit Sales Returns $200.

D) Debit Accounts Payable $200; credit Merchandise Inventory $200.

E) Debit Accounts Payable $1,800; credit Purchase Returns $200; credit Merchandise Inventory $1,600.

111) A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the payment on July 28 is:

A) Debit Merchandise Inventory $1,600; credit Cash $1,600.

B) Debit Cash $1,600; credit Accounts Payable $1,600.

C) Debit Accounts Payable $1,600; credit Merchandise Inventory $32; credit Cash $1,568.

D) Debit Accounts Payable $1,800; credit Cash $1,800.

E) Debit Accounts Payable $1,600; credit Cash $1,600.

112) A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 12, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the payment on July 12 is:

A) Debit Merchandise Inventory $1,600; credit Cash $1,600.

B) Debit Cash $1,600; credit Accounts Payable $1,600.

C) Debit Accounts Payable $1,600; credit Merchandise Inventory $32; credit Cash $1,568.

D) Debit Accounts Payable $1,800; credit Cash $1,800.

E) Debit Accounts Payable $1,600; credit Cash $1,600.

113) A company purchased $4,000 worth of merchandise. Transportation costs were an additional $350. The company returned $275 worth of merchandise and then paid the invoice within the 2% cash discount period. The total cost of this merchandise is:

A) $3,725.00.

B) $3,925.00.

C) $3,995.00.

D) $4,000.50.

E) $4,075.00.

114) A buyer of $7,000 in merchandise inventory failed to take advantage of the vendor's credit terms of 2/15, n/45, and instead paid the invoice in full at the end of 45 days. By not taking advantage of the cash discount, the buyer lost the discount of:

A) $70.

B) $1,050.

C) $700.

D) $100.

E) $140.

115) Sales returns:

A) Refer to merchandise that customers return to the seller after the sale.

B) Refer to reductions in the selling price of merchandise sold to customers.

C) Represent cash discounts.

D) Represent trade discounts.

E) Are not recorded under the perpetual inventory system until the end of each accounting period.

116) Which of the following statements regarding sales returns and allowances is not true?

A) A reduction in the selling price because of damaged merchandise is included in sales returns and allowances.

B) Sales returns and allowances do not have an impact on gross profit.

C) Sales returns and allowances are recorded in a separate contra-revenue account.

D) Sales returns and allowances are rarely disclosed in published financial statements.

E) Sales returns and allowances are closed to the Income Summary account.

117) A debit to Sales Returns and Allowances and a credit to Accounts Receivable:

A) Reflects an increase in amount due from a customer.

B) Recognizes that a customer returned merchandise and/or received an allowance.

C) Records the cost side of a sales return.

D) Is recorded when a customer takes a discount.

E) Reflects a decrease in amount due to a supplier.

118) Sales less sales discounts, less sales returns and allowances equals:

A) Net purchases.

B) Cost of goods sold.

C) Net sales.

D) Gross profit.

E) Net income.

119) Garza Company had sales of $135,000, sales discounts of $2,000, and sales returns of $3,200. Garza Company's net sales equals:

A) $5,200.

B) $129,800.

C) $133,000.

D) $135,000.

E) $140,200.

120) On May 1, Shilling Company sold merchandise in the amount of $5,800 to Anders, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Shilling uses the perpetual inventory system and the gross method. The journal entry or entries that Shilling will make on May 1 is (are):

A)

B)

C)

D)

E)

121) On May 1, Anders Company purchased merchandise in the amount of $5,800 from Shilling, with credit terms of 2/10, n/30. Anders uses the perpetual inventory system and the gross method. The journal entry that Anders will make on May 1 is:

A)

B)

C)

D)

E)

122) On February 3, Smart Company sold merchandise in the amount of $5,800 to Truman Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Smart uses the perpetual inventory system and the gross method. Truman pays the invoice on February 8, and takes the appropriate discount. The journal entry that Smart makes on February 8 is:

A)

B)

C)

D)

E)

123) On July 1, Ferguson Company sold merchandise in the amount of $5,800 to Tracey Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Ferguson uses the perpetual inventory system and the gross method. On July 5, Tracey returns some of the merchandise. The selling price of the merchandise is $500 and the cost of the merchandise returned is $350. The entry or entries that Ferguson must make on July 5 is (are):

A)

B)

C)

D)

E)

124) Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 16, it paid the full amount due. The amount of the cash paid on August 16 equals:

A) $8,167.50.

B) $9,652.50.

C) $9,750.00.

D) $8,250.00.

E) $8,152.50.

125) Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 26, it paid the full amount due. The amount of the cash paid on August 26 equals:

A) $8,167.50.

B) $9,652.50.

C) $9,750.00.

D) $8,250.00.

E) $8,152.50.

126) Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 16, it paid the full amount due. The correct journal entry to record the purchase on August 7 is:

A) Debit Merchandise Inventory $9,750; credit Cash $9,750.

B) Debit Accounts Payable $9,750; credit Merchandise Inventory $9,750.

C) Debit Merchandise Inventory $9,750; credit Sales Returns $1,500; credit Cash $8,250.

D) Debit Merchandise Inventory $9,750; credit Accounts Payable $9,750.

E) Debit Accounts Payable $8,250; debit Purchase Returns $1,500; credit Merchandise Inventory $9,750.

127) Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 26, it paid the full amount due. The correct journal entry to record the merchandise return on August 11 is:

A) Debit Accounts Payable $1,500; credit Cash $1,500.

B) Debit Accounts Payable $1,500; credit Merchandise Inventory $1,500.

C) Debit Merchandise Inventory $1,500; credit Sales Returns $1,500.

D) Debit Merchandise Inventory $1,500; credit Cash $1,500.

E) Debit Accounts Payable $1,500; credit Purchase Returns $1,500.

128) Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 16, it paid the full amount due. The correct journal entry to record the payment on August 16 is:

A) Debit Merchandise Inventory $8,250; credit Cash $8,250.

B) Debit Cash $8,250; credit Accounts Payable $8,250.

C) Debit Accounts Payable $8,250; credit Merchandise Inventory $82.50; credit Cash $8,167.50.

D) Debit Accounts Payable $9,750; credit Merchandise Inventory $97.50; credit Cash $9,652.50.

E) Debit Accounts Payable $8,167.50; credit Cash $8,167.50.

129) A company records the following journal entry: debit Cash $1,470, debit Sales Discounts $30, and credit Accounts Receivable $1,500. This means that a customer has taken what percentage cash discount for early payment?

A) 1%

B) 2%

C) 5%

D) 10%

E) 15%

130) Which of the following statements regarding inventory shrinkage is not true?

A) Inventory shrinkage refers to the loss of inventory.

B) Inventory shrinkage is determined by comparing a physical count of inventory with recorded inventory amounts.

C) Inventory shrinkage is recognized by debiting an operating expense.

D) Inventory shrinkage is recognized by debiting Cost of Goods Sold.

E) Inventory shrinkage can be caused by theft or deterioration.

131) Frisco Company's Merchandise Inventory account at year-end has a balance of $62,115, but a physical count reveals that only $61,900 of inventory exists. The adjusting entry to record this $215 of inventory shrinkage is:

A)

B)

C)

D)

E)

132) Which of the following accounts would be closed at the end of the accounting period with a debit?

A) Sales Discounts.

B) Sales Returns and Allowances.

C) Cost of Goods Sold.

D) Operating Expenses.

E) Sales.

133) An income statement that includes cost of goods sold as another expense and shows only one subtotal for total expenses is a:

A) Balanced income statement.

B) Single-step income statement.

C) Multiple-step income statement.

D) Combined income statement.

E) Simplified income statement.

134) Expenses that support the overall operations of a business and include the expenses relating to accounting, human resource management, and financial management are called:

A) Cost of goods sold.

B) Selling expenses.

C) Purchasing expenses.

D) General and administrative expenses.

E) Non-operating activities.

135) Prentice Company had cash sales of $94,275, credit sales of $83,450, sales returns and allowances of $1,700, and sales discounts of $3,475. Prentice's net sales for this period equal:

A) $94,275.

B) $172,550.

C) $174,250.

D) $176,025.

E) $177,725.

136) Multiple-step income statements:

A) Are required by the FASB and IASB.

B) Contain more detail than a simple listing of revenues and expenses.

C) Are required for the periodic inventory system.

D) List cost of goods sold as an operating expense.

E) Are only used in perpetual inventory systems.

137) Expenses to promote sales by displaying and advertising merchandise, make sales, and deliver goods to customers are known as:

A) General and administrative expenses.

B) Cost of goods sold.

C) Selling expenses.

D) Purchasing expenses.

E) Non-operating activities.

138) A company has net sales of $752,000 and cost of goods sold of $543,000. Its net income is $17,530. The company's gross margin and operating expenses, respectively, are:

A) $209,000 and $191,470.

B) $191,470 and $209,000.

C) $525,470 and $227,000.

D) $227,000 and $525,470.

E) $734,000 and $191,470.

139) Which of the following accounts is used in the periodic inventory system but not used in the perpetual inventory system?

A) Merchandise Inventory

B) Sales

C) Sales Returns and Allowances

D) Accounts Payable

E) Purchases

140) When preparing an unadjusted trial balance using a periodic inventory system, the amount shown for Merchandise Inventory is:

A) The ending inventory amount.

B) The beginning inventory amount.

C) Equal to the cost of goods sold.

D) Equal to the cost of goods purchased.

E) Equal to the gross profit.

141) On September 12, Vander Company sold merchandise in the amount of $5,800 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Vander uses the periodic inventory system and the gross method of accounting for sales. The journal entry or entries that Vander will make on September 12 is (are):

A)

B)

C)

D)

E)

142) On September 12, Vander Company sold merchandise in the amount of $5,800 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Jepson uses the periodic inventory system and the gross method of accounting for purchases. The journal entry that Jepson will make on September 12 is:

A)

B)

C)

D)

E)

143) On September 12, Vander Company sold merchandise in the amount of $5,800 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Vander uses the periodic inventory system and the gross method of accounting for sales. Jepson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Vander makes on September 18 is:

A)

B)

C)

D)

E)

144) On September 12, Vander Company sold merchandise in the amount of $5,800 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Jepson uses the periodic inventory system and the gross method of accounting for purchases. Jepson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Jepson makes on September 18 is:

A)

B)

C)

D)

E)

145) On September 12, Vander Company sold merchandise in the amount of $5,800 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Vander uses the periodic inventory system and the gross method of accounting for sales. On September 14, Jepson returns some of the non-defective merchandise, which is restored to inventory. The selling price of the returned merchandise is $500 and the cost of the merchandise returned is $350. The entry or entries that Vander must make on September 14 is (are):

A)

B)

C)

D)

E)

146) On September 12, Vander Company sold merchandise in the amount of $5,800 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Vander uses the periodic inventory system and the gross method of accounting for sales. On September 14, Jepson returns some of the merchandise. The selling price of the merchandise is $500 and the cost of the merchandise returned is $350. Jepson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Vander makes on September 18 is:

A)

B)

C)

D)

E)

147) Cushman Company had $800,000 in net sales, $350,000 in gross profit, and $200,000 in operating expenses. Cost of goods sold equals:

A) $150,000.

B) $450,000.

C) $800,000.

D) $350,000.

E) $200,000.

148) Cushman Company had $800,000 in sales, sales discounts of $12,000, sales returns and allowances of $18,000, cost of goods sold of $380,000, and $275,000 in operating expenses. Gross profit equals:

A) $770,000.

B) $115,000.

C) $390,000.

D) $402,000.

E) $408,000.

149) Cushman Company had $800,000 in sales, sales discounts of $12,000, sales returns and allowances of $18,000, cost of goods sold of $380,000, and $275,000 in operating expenses. Net income equals:

A) $770,000.

B) $402,000.

C) $390,000.

D) $115,000.

E) $408,000.

150) A company purchased $10,000 of merchandise on June 15 with terms of 3/10, n/45. On June 20, it returned $800 of that merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it was entitled to. The cash paid on June 24 equals:

A) $8,924.

B) $9,700.

C) $10,000.

D) $9,800.

E) $8,724.

151) A company purchased $10,000 of merchandise on June 15 with terms of 3/10, n/45, and FOB shipping point. The freight charge, $500, was added to the invoice amount. On June 20, it returned $800 of that merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it is entitled to. The cash paid on June 24 equals:

A) $9,224.

B) $10,200.

C) $10,500.

D) $10,300.

E) $9,424.

152) A company's current assets are $23,420, its quick assets are $13,890 and its current liabilities are $12,220. Its acid-test ratio equals:

A) 0.88.

B) 1.91.

C) 1.14.

D) 0.52.

E) 1.41.

153) Using the following year-end information for Bauman, LLC, calculate the current ratio and acid-test ratio:

A) 3.01 and 1.21

B) 3.16 and 0.97

C) 3.04 and 1.21

D) 1.09 and 4.77

E) 3.16 and 1.21

154) A company's net sales are $775,420, its costs of goods sold are $413,890, and its net income is $117,220. Its gross margin ratio equals:

A) 46.6%.

B) 53.4%.

C) 28.3%.

D) 31.5%.

E) 40.5%.

155) Which of the following statements related to the multiple-step income statement is not true?

A) Subtotals for total selling expenses and general and administrative expenses are reported.

B) Interest revenue is included with other revenue and gains.

C) The first section of the statement reports gross profit.

D) Shows only one total for expenses.

E) Nonoperating items are reported separately from operations.

156) A company purchases merchandise with a catalog price of $20,000. The company receives a 35% trade discount from the seller. The seller also offers credit terms of 2/10, n/30. Assuming no returns were made and that payment was made within the discount period, what is the net cost of the merchandise?

A) $13,720.

B) $19,600.

C) $6,860.

D) $13,000.

E) $12,740.

157) A company has net sales of $825,000 and cost of goods sold of $547,000. Its net income is $98,500. The company's gross margin and operating expenses, respectively, are:

A) $209,000 and $191,470.

B) $278,000 and $179,500.

C) $278,000 and $98,500.

D) $179,500 and $98,500.

E) $645,500 and $179,500.

158) On March 12, Klein Company sold merchandise in the amount of $7,800 to Babson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual inventory system and the gross method of accounting for sales. The journal entry or entries that Klein will make on March 12 is (are):

A)

B)

C)

D)

E)

159) On March 12, Klein Company sold merchandise in the amount of $7,800 to Babson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual inventory system and the gross method of accounting for sales. Babson pays the invoice on March 17, and takes the appropriate discount. The journal entry that Klein makes on March 17 is:

A)

B)

C)

D)

E)

160) On March 12, Klein Company sold merchandise in the amount of $7,800 to Babson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual inventory system and the gross method of accounting for sales. On March 15, Babson returns some of the merchandise, which is not defective. The selling price of the returned merchandise is $600 and the cost of the merchandise returned is $350. The entry or entries that Klein must make on March 15 is (are):

A)

B)

C)

D)

E)

161) On March 12, Klein Company sold merchandise in the amount of $7,800 to Babson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual inventory system and the gross method of accounting for sales. On March 15, Babson returns some of the merchandise. The selling price of the merchandise is $600 and the cost of the merchandise returned is $350. Babson pays the invoice on March 20, and takes the appropriate discount. The amount that Klein receives from Babson on March 20 is:

A) $7,800.

B) $7,644.

C) $7,044.

D) $7,056.

E) $7,200.

162) On March 12, Klein Company sold merchandise in the amount of $7,800 to Babson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual inventory system and the gross method of accounting for sales. On March 15, Babson returns some of the merchandise. The selling price of the merchandise is $600 and the cost of the merchandise returned is $350. Babson pays the invoice on March 20, and takes the appropriate discount. The journal entry that Klein makes on March 20 is:

A)

B)

C)

D)

E)

163) Zenith Company's Merchandise Inventory account at year-end has a balance of $91,820, but a physical count reveals that only $90,450 of inventory exists. The adjusting entry to record this $1,370 of inventory shrinkage is:

A)

B)

C)

D)

E)

164) Which of the following statements regarding sales returns and allowances is not true?

A) New revenue recognition rules require sellers to report sales net of expected returns and allowances for annual periods.

B) The Inventory Returns Estimated account is a current liability account.

C) Sales returns and allowances estimates are typically made as period-end adjustments.

D) When sales returns and allowances adjustments are made to sales, an estimate must also be made for the cost side.

E) Sales Refund Payable is a current liability account.

165) In its first year of business, Borden Corporation had sales of $2,000,000 and cost of goods sold of $1,200,000. Borden expects returns in the following year to equal 8% of sales. The adjusting entry or entries to record the expected sales returns is (are):

A)

B)

C)

D)

E)

166) In the current year, Borden Corporation had sales of $2,000,000 and cost of goods sold of $1,200,000. Borden expects returns in the following year to equal 8% of sales. The unadjusted balance in Inventory Returns Estimated is a debit of $6,000, and the unadjusted balance in Sales Refund Payable is a credit of $10,000. The adjusting entry or entries to record the expected sales returns is (are):

A)

B)

C)

D)

E)

167) Netherland Corporation has the following unadjusted balances: Accounts Receivable, $80,000 (debit), and Allowance for Sales Discounts $300 (credit). Of the receivables, $50,000 of them are within the 2% discount period, and Netherland expects buyers to take $1,000 in future-period discounts ($50,000 × 2%) arising from this period's sales. The adjusting entry or entries to estimate sales discounts is (are):

A)

B)

C)

D)

E)

168) An expense resulting from failing to take advantage of cash discounts when using the net method of recording purchases is called:

A) Sales discounts.

B) Trade discounts.

C) Purchases discounts.

D) Discounts lost.

E) Discounts earned.

169) A company that uses the net method of recording purchases and a perpetual inventory system purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The correct journal entry to record the payment on July 28 is:

A) Debit Merchandise Inventory $1,600; credit Cash $1,600.

B) Debit Cash $1,600; credit Accounts Payable $1,600.

C) Debit Accounts Payable $1,600; credit Merchandise Inventory $32; credit Cash $1,568.

D) Debit Accounts Payable $1,800; credit Cash $1,800.

E) Debit Accounts Payable $1,568; debit Discounts Lost $32; credit Cash $1,600.

170) Morgan, Inc. uses a perpetual inventory system and the net method of recording purchases. On May 12, a merchandise purchase of $15,000 was made on credit, 2/10, n/30. The journal entry to record this purchase is:

A)

B)

C)

D)

E)

171) The net method of recording purchases refers to recording:

A) Purchases at the invoice price less any cash discounts.

B) Specified amounts and timing of payments that a buyer agrees to in return for being granted credit.

C) Purchases at the full invoice price, without deducting any cash discounts.

D) Inventory at its selling price.

E) Inventory at the lower of cost or market.

172) On March 12, Klein Company sold merchandise in the amount of $7,800 to Babson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual inventory system and the net method of accounting for sales. On March 15, Babson returns some of the merchandise, which is not defective. The selling price of the returned merchandise is $600 and the cost of the merchandise returned is $350. The entry or entries that Klein must make on March 15 is (are):

A)

B)

C)

D)

E)

173) On September 12, Ryan Company sold merchandise in the amount of $5,800 to Johnson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Ryan uses the periodic inventory system and the net method of accounting for sales. The journal entry or entries that Ryan will make on September 12 is (are):

A)

B)

C)

D)

E)

174) On September 12, Ryan Company sold merchandise in the amount of $5,800 to Johnson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Johnson uses the periodic inventory system and the net method of accounting for purchases. The journal entry that Johnson will make on September 12 is:

A)

B)

C)

D)

E)

175) On September 12, Ryan Company sold merchandise in the amount of $5,800 to Johnson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Ryan uses the periodic inventory system and the net method of accounting for sales. Johnson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Ryan makes on September 18 is:

A)

B)

C)

D)

E)

176) On September 12, Ryan Company sold merchandise in the amount of $5,800 to Johnson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Johnson uses the periodic inventory system and the net method of accounting for purchases. Johnson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Johnson makes on September 18 is:

A)

B)

C)

D)

E)

177) On September 12, Ryan Company sold merchandise in the amount of $5,800 to Johnson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Ryan uses the periodic inventory system and the net method of accounting for sales. On September 14, Johnson returns some of the non-defective merchandise, which is restored to inventory. The selling price of the returned merchandise is $500 and the cost of the merchandise returned is $350. The entry or entries that Ryan must make on September 14 is (are):

A)

B)

C)

D)

E)

178) On September 12, Ryan Company sold merchandise in the amount of $5,800 to Johnson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Ryan uses the periodic inventory system and the net method of accounting for sales. On September 14, Johnson returns some of the merchandise. The selling price of the merchandise is $500 and the cost of the merchandise returned is $350. Johnson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Ryan makes on September 18 is:

A)

B)

C)

D)

E)

179) Match the following definitions and terms by placing the letter for the terms A through J in the blank space next to the best definition.

A. Trade discount F. Acid-test ratio

B. General and administrative expenses G. Merchandise inventory

C. FOB shipping point H. Selling expenses

D. Single-step income statement I. Multiple-step income statement

E. FOB destination J. Inventory shrinkage

___ 1. A measure of a company's ability to pay its current liabilities that excludes less liquid current assets such as inventory and prepaid expenses.

___ 2. An income statement format that lists cost of goods sold as another expense and shows only one subtotal for total expenses.

___ 3. The point of ownership transfer from seller to buyer that takes place when the goods arrive at the buyer's place of business.

___ 4. Products a company owns and intends to sell.

___ 5. The expenses that support a company's overall operations and include costs related to accounting, human resources and finance.

___ 6. The point of ownership transfer from seller to buyer that takes place when the goods depart the seller's place of business.

___ 7. Inventory losses that require an adjusting entry to account for losses from theft or deterioration.

___ 8. An income statement format that shows detailed computations of net sales and other costs and expenses, and reports subtotals for various classes of items.

___ 9. A given percent deducted from a list price often granted to customers purchasing large quantities of merchandise.

___ 10. The expenses of advertising merchandise, making sales, and delivering goods to customers.

180) Match the following terms with the appropriate definition.

A. Shrinkage

B. Credit period

C. Credit terms

D. Purchase allowance

E. Discount period

F. Gross profit

G. Periodic inventory system

H. Perpetual inventory system

I. Sales discount

J. Purchases discounts

__ 1. An inventory accounting method that updates accounting records for each purchase and each sale of inventory.

__ 2. An inventory accounting method that updates the accounting records for purchases and sales of inventory only at the end of a period.

__ 3. The time period in which reduced payment can be made by the buyer because of a cash discount offered by a seller of goods on credit.

__ 4. The loss of inventory from theft and deterioration.

__ 5. A cash discount granted, from the view of the purchaser intended to encourage buyers to pay amounts owed earlier.

__ 6. Price reduction granted by the seller to a buyer of defective or unacceptable merchandise.

__ 7. A cash discount granted from the view of the seller, indicated in the credit terms on the invoice.

__ 8. The calculation of net sales minus cost of goods sold.

__ 9. The description of the amounts and timing of payments from a buyer to a seller for a purchase.

__ 10. The amount of time allowed before full payment is due.

181) Identify and explain the key components of a merchandiser's net income.

182) Describe the difference between wholesalers and retailers.

183) Define inventory for a merchandising company and describe how inventory is valued and reported.

184) What are the steps of the operating cycle for a merchandiser with credit sales?

185) Describe the difference between the periodic and perpetual inventory accounting systems.

186) Explain the way in which costs flow through the merchandise inventory account to a merchandiser's income statement.

187) What is the acid-test ratio? How does it measure a company's liquidity?

188) What is gross margin ratio? How is it used as an indicator of profitability?

189) Describe the differences between FOB shipping point and FOB destination.

190) Describe the recording process (including costs) for the types of transactions involved in purchasing merchandise inventory when a perpetual inventory system is used.

191) Describe the recording process (including costs) for the types of transactions associated with sales of merchandise inventory using a perpetual inventory system.

192) What is inventory shrinkage? How do managers account for shrinkage?

193) How do closing entries for a merchandising company that uses the perpetual inventory system differ from the closing entries for a service company?

194) Explain the difference between the single-step and multiple-step income statements.

195) Distinguish between selling expenses and general and administrative expenses.

196) Describe the difference(s) between the periodic and the perpetual inventory accounting systems.

197) Describe why tracking inventory activities are necessary for a merchandising company.

198) Discuss the period-end adjusting entries that are required in the new revenue recognition standards for estimating sales discounts and sales returns and allowances.

199) Farmen Company had net sales of $600,000 and cost of goods sold of $450,000. Calculate Farmen's gross profit.

200) National Storage Company had sales of $1,000,000, sales discounts of $2,500, sales returns and allowances of $15,000, and cost of goods sold of $525,000. Calculate National's gross profit.

201) Harley's Antique Shop had net sales of $772,000. The gross profit was $415,000. Calculate Harley's cost of goods sold.

202) Fill in the blanks (a) through (g) for the Morrison Company for each of the income statements for years 1, 2, and 3.

203) Fill in the blanks (a) through (g) for the Corman Company for each of the income statements for years 1 and 2

204) The following information is available for Flanders and its two main competitors in the industry, Sanders and Anders:

The industry standard for the current ratio is 1.8 and the industry standard for the acid-test ratio is 1.

Required:

1. Calculate the current ratio and acid-test ratio for each firm.

2. Rank the firms in decreasing order of liquidity.

3. Comment on Flanders' relative liquidity position.

205) The following information refers to Percy's Records and its competitors in the music store business.

Required:

Comment on the relative liquidity positions of these companies.

206) A company reported the following year-end information:

Required:

1. Explain the purpose of the acid-test ratio.

2. Calculate the acid-test ratio for this company.

3. What does the acid-test ratio reveal about this company?

207) Calculate the gross margin ratio for each of the following separate cases A through C:

208) A company reported the following information for the month of July:

Required: Calculate this company's gross profit.

209) A company reported the following information for the month of July:

Required: Calculate this company's gross margin ratio.

210) The following information is for Barrel and its competitor Crate.

Required:

1. Calculate the dollar amount of gross margin and the gross margin ratio to the nearest percent, for each company for both years.

2. Which company had the more favorable ratio for each year?

3. Which company had the more favorable change in the gross margin ratio over this 2-year period?

211) A company that uses the perpetual inventory system and the gross method of accounting for purchases purchased $8,500 of merchandise on March 25 with credit terms of 2/10, n/30. The invoice was paid in full on April 4. Prepare the journal entries to record the transactions on March 25 and April 4.

212) Sabor Company uses a perpetual inventory system and the gross method of accounting for purchases. Sabor purchased $17,800 of merchandise on April 7 with credit terms of 1/10, n/30. Merchandise with a cost of $1,800 was damaged and returned to the seller on April 10. On April 16 the company paid the amount due. Prepare the journal entries to record the transactions on all three dates.

213) Tahoe Ski Company uses the perpetual inventory system and the gross method of accounting for purchases. The company had the following transactions during January:

January 6: Purchased $4,000 of inventory. The seller's credit terms are 2/10, n/30.

January 8: Returned $200 worth of defective units and received full credit.

January 15: Paid the amount due, less the returned items.

Prepare journal entries to record each of the preceding transactions.

214) Serene Spa Sales uses the perpetual inventory system and the gross method of accounting for purchases and sales, and had the following transactions during August.

Required:

Prepare the general journal entries to record these transactions.

215) Craig's Snowboards uses the perpetual inventory system and the gross method of accounting for sales, and had the following sales transactions during June:

Prepare the journal entries that Craig's Snowboards must make to record these transactions.

216) Forrest's Cycle Shop uses a perpetual inventory accounting system and the gross method of accounting for sales had the following transactions during the month of July:

217) Following is the year-end adjusted trial balance for Fred's Corner Grocery for the current year:

Prepare the closing entries at December 31 for the current year.

218) The year-end adjusted trial balance of Gordon Produce for the current year, is shown below:

Prepare closing entries at December 31 for the current year.

219) From the adjusted trial balance for Brookstone Art Supplies given below, prepare a multiple-step income statement in good form.

220) From the adjusted trial balance for Fabricated Products Company given below, prepare the necessary closing entries.

221) Johnnycake Restaurant uses a periodic inventory system and the gross method of accounting for purchases. Prepare general journal entries to record the following transactions for Johnnycake:

222) Austin's Pub Supply uses the periodic inventory system and the gross method of accounting for sales. The company had the following sales transactions during August:

Prepare the journal entries that Austin's Pub Supply must make to record these transactions.

223) Preston Office Furniture uses the periodic inventory system and the gross method of accounting for sales. It had the following transactions during the month of May:

The customer from May 3 paid the full amount due, less any appropriate discounts earned.

Prepare the required journal entries that Preston Office Furniture must make to record these transactions.

224) At its fiscal year-end of June 30, Kendall Wholesale's general ledger shows the following selected account balances. Kendall Wholesale uses the perpetual inventory system.

A physical count of its June 30 year-end inventory discloses that the cost of the merchandise inventory still available is $58,160. Prepare the entry to record any inventory shrinkage.

225) Prepare journal entries to record the following merchandising transactions of Margin Company, which applies the perpetual inventory system and the gross method of recording invoices. Margin Company offers all of its credit customers credit terms of 2/10, n/30.

226) Prepare journal entries to record the following merchandising transactions of Margin Company, which applies the perpetual inventory system and the gross method of recording invoices. Margin Company offers all of its credit customers credit terms of 2/10, n/30.

227) Prepare journal entries to record the following merchandising transactions of Margin Company, which applies the perpetual inventory system and the gross method of recording invoices. Margin Company offers all of its credit customers credit terms of 2/10, n/30.

228) From the adjusted trial balance given below for the Grayson Company, prepare a multiple-step income statement in good form. Salaries expense and building depreciation expense should be equally divided between selling activities and the general and administrative activities.

229) Vincent Company purchased merchandise from Liu Company with an invoice price of $300,000 and credit terms of 2/10, n/30. Liu Company's cost for the merchandise was $200,000. Vincent Company paid within the discount period. Assume that both buyer and seller use a perpetual inventory system and the gross method of recording invoices.

1. Prepare entries that Vincent should record for (a) the purchase and (b) the cash payment.

2. Prepare entries that Liu should record for (a) the sale and (b) the cash collection.

3. Assume that the buyer borrowed enough cash to pay the balance on the last day of the discount period at an annual interest rate of 9% and paid it back on the last day of the credit period. Compute how much the buyer saved by following this strategy. (Assume a 365-day year and round dollar amounts to the nearest cent.)

230) Prepare journal entries to record the following merchandise transactions of Martinez Excavation Equipment, which applies the perpetual inventory system and the gross method of recording invoices.

231) In its first month of business, Clausen Corporation reports sales of $1,750,000 and cost of goods sold of $950,000. Clausen estimates that current and future returns and allowances will equal 4% of those sales. Prepare the October 31 adjusting entries necessary to record the revenue side and cost side estimates for returns and allowances.

232) Stevenson Corporation reports unadjusted first-year sales of $400,000 and cost of goods sold of $240,000. The company expects future returns and allowances equal to 3% of sales and 3% of cost of sales. Prepare the adjusting entries necessary to record the revenue side and cost side estimates for returns and allowances.

233) Martin Corporation allows customers to return merchandise within 60 days of purchase. At year-end, Martin estimates that sales of $20,000, with a cost of $14,000 will be returned in the upcoming year. The unadjusted balance in Inventory Returns Estimated is a debit of $4,000, and the unadjusted balance in Sales Refund Payable is a credit of $2,500. Prepare the adjusting entries necessary to record the revenue side and cost side estimates for returns and allowances.

234) Tahoe Ski Company uses the perpetual inventory system and the net method of accounting for purchases. The company had the following transactions during January:

January 6: Purchased $4,000 of inventory. The seller's credit terms are 2/10, n/30.

January 8: Returned $200 worth of defective units and received full credit.

January 15: Paid the amount due, less the returned items.

Prepare journal entries to record each of the preceding transactions.

235) Barbara's Boats uses the periodic inventory system and the net method of accounting for purchases. The company had the following transactions during January:

January 6: Purchased $10,000 of inventory. The seller's credit terms are 2/10, n/30.

January 31: Due to an oversight, the invoice was not paid within the discount period. Full payment was made on January 31.

Prepare journal entries to record each of the preceding transactions.

236) A ________ buys products from manufacturers and sells to retailers.

237) A ________ company's operating cycle begins with the purchase of merchandise and ends with the collection of cash from merchandise sales.

238) Products that a company owns and intends to sell are called ________.

239) A ________ inventory system updates the accounting record for inventory only at the end of an accounting period.

240) The ________ inventory system updates accounting records for each purchase and each sale of inventory.

241) Beginning inventory plus the net cost of purchases is the ________.

242) A period's beginning inventory is equal to the prior period's ________.

243) The liquidity of a company can be measured using the current ratio and the ________, which only includes the most liquid current assets in its calculation.

244) The gross margin ratio equals net sales less ________ divided by net sales.

245) ________ are the amounts and timing of payment from a buyer to a seller.

246) A ________ is a price reduction granted by the seller to a buyer of defective or unacceptable merchandise.

247) FOB ________ means the buyer accepts ownership when the goods depart the seller's place of business. The buyer is responsible for paying shipping costs and bears the risk of damage or loss when goods are in transit.

248) FOB ________ means ownership of goods transfers to the buyer when the goods arrive at the buyer's place of business. The seller is responsible for paying shipping charges and bears the risk of damage or loss in transit.

249) Merchandise that customers return to the seller after a sale is referred to as ________.

250) Reductions in the selling price of merchandise sold to customers, often involving damaged or defective merchandise that a customer is willing to purchase with a decrease in the selling price is referred to as ________.

251) The seller might offer a(n) ________ to a buyer that is not satisfied with the goods received.

252) ________ can benefit a seller by decreasing the delay in receiving cash and reducing future collection efforts.

253) Inventory shrinkage can be computed by comparing the ________ of inventory with recorded quantities and amounts.

254) ________ expenses are those costs that support a company's overall operations and include expenses related to accounting, human resources, and finance.

255) A ________ income statement format shows net sales and reports subtotals for various types of items such as gross profit, income for operations, and net income.

256) A ________ income statement lists cost of goods sold as another expense and shows only one subtotal for total expenses.

257) Non-operating activities that include interest, dividends and rent revenues, and gains from asset disposals are called ________.

258) Non-operating activities that include interest expense, losses from asset disposals, and casualty losses are reported as ________.

259) When a company has no reportable non-operating activities, its income from operations is reported as ________.

260) Under the ________ inventory accounting system, each purchase, purchase return and allowance, purchase discount, and transportation-in transaction is recorded in a separate temporary account.